On 17 January 2013 the Limited Liability Partnerships (Amendment of Law) (Jersey) Regulations 2013 (the "Regulations") came into force. The Regulations remove a fundamental problem in the Limited Liability Partnerships (Jersey) Law 1997 (the "Law"), that flaw being the requirement that a Jersey limited liability partnership (an "LLP") maintain a £5,000,000 bond to provide protection to creditors on its winding up. To compound matters, this bond could not be assigned, charged or otherwise encumbered by the LLP. There are various theories at to why such a requirement was imposed in the first place but there is no argument over the fact that the requirement effectively killed off Jersey LLPs from the moment of their birth. In the 15 or so years of the Law's life, no LLPs have been set up in Jersey.
The Regulations are therefore to be welcomed as they replace the requirement for a bond with the requirement to make and file an annual "specified solvency statement". The solvency statement must specify that the LLP, in its opinion and having regard to:
a) its prospects and the intentions of the partners with respect to the management of its business; and
b) the amount and character of the financial resources that will be available to it, the LLP will be able to:
i) continue to carry on business, and
ii) discharge its liabilities as they fall due,
until the earlier of either the end of the 12 month period immediately following the date of the solvency statement or the date on which the LLP is dissolved.
An LLP may make a solvency statement at any time but it cannot allow any partner or former partner to withdraw any partnership property from the LLP unless a solvency statement has been made with the 12 months immediately preceding the withdrawal. If a withdrawal of partnership property is made either when a statement of solvency has not been made within the immediately preceding 12 months or when a statement of solvency has been made but there have not been reasonable grounds for making it, the recipient is potentially liable to return or account for the property to the LLP.
The Regulations go on to provide that a partner will not be liable to return partnership property if the Royal Court is satisfied (i) that at the time the distribution was made the LLP was solvent, (ii) that the LLP has subsequently made a solvency statement and (iii) that it would be contrary to the interests of justice for the partner to be liable to repay or account for the distribution.
Consequential amendments have also been made to Jersey's income tax regime to ensure that an LLP's profits and gains arising from international activities and attributable to a non-Jersey resident LLP partner are not liable to Jersey tax.
In removing the requirement for a bond and replacing it with the requirement for a statement of solvency, the Regulations have resolved a fundamental problem affecting Jersey's attractiveness as an LLP jurisdiction. Jersey's amended LLP regime now provides a viable alternative to Jersey's range of other partnership structures (traditional partnerships, limited partnerships, incorporated limited partnerships and separate limited partnerships) for those considering the setting up of offshore asset holding vehicles or structures for the conduct of professional services.
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